AAII Sentiment Survey: Optimism Falls to a Two-Year Low

Optimism fell to a two-year low as neutral sentiment stayed above 45% for a fifth consecutive week in the latest AAII Sentiment Survey. Pessimism rose to a one-month high.

Bullish sentiment, expectations that stock prices will rise over the next six months, fell 3.8 percentage points to 27.1%. This is the lowest amount of pessimism recorded by our survey since April 18, 2013 (26.8%). The drop puts optimism below its historical average of 39.0% for a ninth consecutive week, the longest such streak since an 11-week stretch between March 20 and May 29, 2014.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.1 percentage points to 46.1%. The increase keeps neutral sentiment above 45% for a fifth consecutive week, the longest such streak since a six-week stretch between May 13 and June 17, 1988. It also keeps neutral sentiment above its historical average of 31.0% for the 18th consecutive week.

Bearish sentiment, expectations that stock prices will fall over the next six months, jumped 4.9 percentage points to 26.8%. Pessimism was last higher on April 2, 2015. Nonetheless, this is the 15th week this year with a bearish sentiment reading below its historical average of 30.0%.

Bullish sentiment is now at an unusually low level, while neutral sentiment continues to stay at an unusually high level. Historically, such readings—both unusually low bullish sentiment and unusually high neutral sentiment—have been correlated with better-than-average market performance over the following six- and 12-month periods. (See Analyzing the AAII Sentiment Survey Without Hindsight in the June 2014 AAII Journal for more information.) There is no guarantee history will repeat itself in the future, however.

Causing some AAII members to be cautious or pessimistic are prevailing valuations, recent price volatility, geopolitical events, the pace of economic growth, the impact of the stronger dollar on earnings growth and worries that a notable decline in stock prices could occur. Keeping other AAII members encouraged are the ongoing bull market, sustained economic expansion, earnings growth and still-accommodative monetary policy.

This week’s AAII Sentiment Survey results:

Bullish: 27.1%, down 3.8 percentage points

Neutral: 46.1%, down 1.1 percentage points

Bearish: 26.8%, up 4.9 percentage points

Historical averages:

Bullish: 39.0%

Neutral: 31.0%

Bearish: 30.0%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.). The survey and its results are available online at: http://www.aaii.com/sentimentsurvey.